The US dollar weakened at the start of the week following a US-Iran Memorandum of Understanding, while oil prices tumbled and US stocks rose. Markets await the Fed's policy stance under new Chair Kevin Warsh.
USD Weakness Amid Iran Deal Optimism
The US dollar opened the week lower as a Memorandum of Understanding (MOU) between the US and Iran sparked optimism over de-escalation in the Middle East. The agreement, announced by Pakistani Prime Minister Shehbaz Sharif and confirmed by President Trump, includes a 60-day negotiation period and the reopening of the Strait of Hormuz, a critical oil shipping route. However, divergent interpretations of terms—particularly regarding frozen Iranian funds—highlight potential challenges ahead.
Technical analysis of major currency pairs showed EURUSD and GBPUSD edging higher, while USDJPY faced pressure amid a broader risk-on rally. US equity markets surged in premarket trading, with the Nasdaq up 636 points, the S&P 500 gaining 94 points, and the Dow rising 479 points. Treasury yields declined across the curve, with the 10-year yield dropping 249 basis points to 4.455%, as investors shifted focus to the Federal Reserve's upcoming FOMC meeting.
Oil Prices Plunge on Supply Relief
Crude oil futures fell sharply, down $4.56 (-5.37%) to $80.32 a barrel, with prices approaching the April 17 swing low of $78.97. The decline reflects easing supply disruption fears following the Iran deal. Analysts noted that while the drop alleviates near-term inflation concerns, it does not signal a return to rate-cut expectations. The 200-day moving average at $73.41 remains a key support level.
Fed Policy Outlook Under New Leadership
The FOMC meeting on Wednesday will mark Kevin Warsh's debut as Fed Chair. Known for advocating reduced forward guidance and a more traditional policy approach, Warsh's stance could influence market expectations. However, with inflation still elevated and geopolitical risks persisting, his ability to pivot toward a less transparent framework may be constrained. The Bank of Japan, Reserve Bank of Australia, Swiss National Bank, and Bank of England are also set to announce policy decisions this week.
Market Sentiment and Technical Outlook
Risk appetite improved as gold rose 2.78% to $1,945 an ounce, and Bitcoin climbed to $66,265. The yield curve inversion at the 10-year level underscores lingering economic uncertainty. For Forex traders, the DXY's weakness suggests potential opportunities in EUR and GBP pairs, though caution is warranted given unresolved Iran deal details and the Fed's policy trajectory.
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